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Here's What Really Happened at That Company That Set a $70,000 Minimum Wage

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Re: Here's What Really Happened at That Company That Set a $70,000 Minimum Wage

#31

Post by evanpw »

stingraycharles wrote: post #20
evanpw wrote: post #15

Earlier quoted context omitted.

In an economically idealized world, if someone pays above-market wages then you would expect a competitor to appear that will charge less to their customers while making the same profits, destroying the first business. Of course, in that idealized world, there are no "excess profits" (profits not commensurable with risk), so it should be impossible for the company to raise wages like that anyway. So the real question…

If we bring economics on the table, we can also turn it around: when you pay higher wages, you suddenly have a pool of better qualified employees to select from, increasing productivity / profits.

It seems really strange to argue that wages are too low because business owners aren't greedy enough (to raise wages to profit-maximizing levels).

It actually appears more likely that employers have on average already set wages slightly above the market-clearing level in order to improve productivity and maximize profits. This is the theory of "efficiency wages" [1], which tries to explain why unemployment persists when companies could cut wages and employ more people.

There is no free lunch.

[1] http://marginalrevolution.com/marginalrevolution/2015/04/the...

Re: Here's What Really Happened at That Company That Set a $70,000 Minimum Wage

#32

Post by rdancer »

Jtsummers wrote: post #27
rglullis wrote: post #26

Earlier quoted context omitted.

Yeah, but we are making assumptions about market-clearing wages and rational agents, here. Anyone that gets to the position of making above-market wages will use this arbitrage opportunity and would be fired, if we followed your strategy. In the end, the only way to end this and to actually get your house cleaned is to pay market-level wages.

Ok, if you're assuming strictly rational agents. If they realize they'll be fired for contracting out their work, then wouldn't the rational thing be to continue working rather than contract out and retire early on the higher income? Or to train people to do as well as you and set up your own business taking advantage of your stronger than average reputation in the field. But doing an activity which has a high probab…

They only get fired if you find out. So the rational thing for them to do is spend part of the arbitraged amount on deceiving you. As long as they are spending less on deceiving you than the arbitraged amount, it is rational for them to do so. Ergo, rampant corruption.

Re: Here's What Really Happened at That Company That Set a $70,000 Minimum Wage

#33

Post by landryraccoon »

rglullis wrote: post #17
landryraccoon wrote: post #14

Earlier quoted context omitted.

I don't get it. If I hire a housekeeper and she asks for $10/hr but because I like her a lot I offer her $20/hr, are you arguing that's socialism? It's my money and I can do whatever I wish with it - that's capitalism at it's finest. The CEO owns the company. If he has total control, he could instead of paying his workers more simply buy himself a jet or donate it to a church. (Obviously, if his shareholders object,…

If I understand the parent correctly, the argument is that any artificial method to establish a price to wages will lead to corruption. Your example is talking about one housekeeper: if she notices that she can arbitrage on your generosity, she can pretty much contract someone else to do her job for $10/hour, and not even show up and still earn $10/hour. If you object to it, it is a signal that you value one's work m…

If what you're saying is true, why don't Dan Price's employees arbitrage the difference between what Gravity is paying them ($70K) and their actual "market value"? If one housekeeper can make it worth her time for $10/hr, surely a large group of individuals can make it worth their time for $35/hr?

But actually I think you're on to something - basically Dan Price is saying he thinks the true market value of the labor provided by his workers is actually $70K a year. And what I'm really saying with my housekeeper is that I like her so much that in order to prevent any risk of her defecting to another employer I'm willing to pay $20/hr instead of $10/hr. She can try to arbitrage, but that means working for someone else for $10/hr, but since I assume she actually wants to work, why would she work for anyone other than the person who values her work the highest? So we're still in capitalist land.

Re: Here's What Really Happened at That Company That Set a $70,000 Minimum Wage

#34

Post by landryraccoon »

rglullis wrote: post #29
Jtsummers wrote: post #27

Earlier quoted context omitted.

Ok, if you're assuming strictly rational agents. If they realize they'll be fired for contracting out their work, then wouldn't the rational thing be to continue working rather than contract out and retire early on the higher income? Or to train people to do as well as you and set up your own business taking advantage of your stronger than average reputation in the field. But doing an activity which has a high probab…

The original rational thing to do would be for the person doing the hiring to just go and pay the $10/hour. "Because I like her" is not an economic justification for extra value.

And yet people habitually tip 15-20% on top of what they're required to pay in restaurants, almost universally. Lots of things aren't rational, but they could still be culturally accepted (and done without coercion, even).

Re: Here's What Really Happened at That Company That Set a $70,000 Minimum Wage

#35

Post by landryraccoon »

rdancer wrote: post #32
Jtsummers wrote: post #27

Earlier quoted context omitted.

Ok, if you're assuming strictly rational agents. If they realize they'll be fired for contracting out their work, then wouldn't the rational thing be to continue working rather than contract out and retire early on the higher income? Or to train people to do as well as you and set up your own business taking advantage of your stronger than average reputation in the field. But doing an activity which has a high probab…

They only get fired if you find out. So the rational thing for them to do is spend part of the arbitraged amount on deceiving you. As long as they are spending less on deceiving you than the arbitraged amount, it is rational for them to do so. Ergo, rampant corruption.

I don't get it. How does the math work out?

Let's suppose the market wage is $10/hr. If I offer a lucky housekeeper $20/hr, why wouldn't she just happily take the money and continue to work? Union workers don't arbitrage themselves (but they should, under your scheme, because they collectively bargain for higher than market wage).

If the cost of deceiving me is greater than zero, then she's being irrational. She can earn no more than $10/hr anywhere else, and hiring someone else to replace her would cost $10/hr (since that's the market rate). So lets say she hires someone else at a cost of $10/hr, and then goes to work for someone else - she's still earning $20/hr (the arbitrage amount plus the value of her labor) minus the cost of deceiving me. So assuming she wants to work for wages (which she must, since she offered to work for $10/hr in the first place) I don't see how it's at all rational to arbitrage the opportunity.

Re: Here's What Really Happened at That Company That Set a $70,000 Minimum Wage

#36

Post by rglullis »

landryraccoon wrote: post #35
rdancer wrote: post #32

Earlier quoted context omitted.

They only get fired if you find out. So the rational thing for them to do is spend part of the arbitraged amount on deceiving you. As long as they are spending less on deceiving you than the arbitraged amount, it is rational for them to do so. Ergo, rampant corruption.

I don't get it. How does the math work out? Let's suppose the market wage is $10/hr. If I offer a lucky housekeeper $20/hr, why wouldn't she just happily take the money and continue to work? Union workers don't arbitrage themselves (but they should, under your scheme, because they collectively bargain for higher than market wage). If the cost of deceiving me is greater than zero, then she's being irrational. She can…

Another way to go around it: you pay $20/h to a job that usually takes X hours to do it, so in the end you will pay 20 times X.

I bring someone else to work with me, and we both do the job in X/2 time. I pay $10/hour for the subcontracted person.

So assume a 8 man-hour job. You will pay $160. I keep $120, the subcontracted $40. My effective rate was $30/hour. You don't think this is a problem, as you see your house cleaned just like usual.

Next time, I bring 3 other people. We finish things in 2 hours. I pay $60 to them, I keep $100. My effective rate was $50/hour.

Next time, I bring 7 other people. We finish things in one hour. I pay $70 to them, I keep $90. My effective rate was $90/hour. I use the other 7 "working" hours of the day to play videogames.

Re: Here's What Really Happened at That Company That Set a $70,000 Minimum Wage

#37

Post by landryraccoon »

rglullis wrote: post #36
landryraccoon wrote: post #35

Earlier quoted context omitted.

I don't get it. How does the math work out? Let's suppose the market wage is $10/hr. If I offer a lucky housekeeper $20/hr, why wouldn't she just happily take the money and continue to work? Union workers don't arbitrage themselves (but they should, under your scheme, because they collectively bargain for higher than market wage). If the cost of deceiving me is greater than zero, then she's being irrational. She can…

Another way to go around it: you pay $20/h to a job that usually takes X hours to do it, so in the end you will pay 20 times X. I bring someone else to work with me, and we both do the job in X/2 time. I pay $10/hour for the subcontracted person. So assume a 8 man-hour job. You will pay $160. I keep $120, the subcontracted $40. My effective rate was $30/hour. You don't think this is a problem, as you see your house c…

> You don't think this is a problem, as you see your house cleaned just like usual.

How are you able to assume this, since I actually would very much see it as a problem if 3-4 people I don't trust to clean my house as much as my housekeeper are inside doing the job? Your underlying assumption is that I'm an idiot and can't see what's happening. She couldn't subcontract the work for the same reason I can't subcontract my work at my current job - my employer would see through it.

> I use the other 7 "working" hours of the day to play videogames.

Not many people would come out for $10/hr for only one hour. What about travel time? And the organization necessary to make sure the quality is still high? I think you're lampshading a ton here.

Re: Here's What Really Happened at That Company That Set a $70,000 Minimum Wage

#38

Post by rglullis »

landryraccoon wrote: post #37
rglullis wrote: post #36

Earlier quoted context omitted.

Another way to go around it: you pay $20/h to a job that usually takes X hours to do it, so in the end you will pay 20 times X. I bring someone else to work with me, and we both do the job in X/2 time. I pay $10/hour for the subcontracted person. So assume a 8 man-hour job. You will pay $160. I keep $120, the subcontracted $40. My effective rate was $30/hour. You don't think this is a problem, as you see your house c…

> You don't think this is a problem, as you see your house cleaned just like usual. How are you able to assume this, since I actually would very much see it as a problem if 3-4 people I don't trust to clean my house as much as my housekeeper are inside doing the job? Your underlying assumption is that I'm an idiot and can't see what's happening. She couldn't subcontract the work for the same reason I can't subcontrac…

You say it's lampshading, I say it's just imagining some ways where people can exploit this type of opportunity when receiving above-market pay.
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